- --------------------------------------------------------------------------------
John Hancock Funds
Limited-
Term
Government
Fund
FINAL REPORT
December 5, 1997
- --------------------------------------------------------------------------------
<PAGE>
John Hancock Funds - Limited-Term Government Fund
Trustees
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl *
Richard A. Farrell *
Gail D. Fosler*
William F. Glavin *
Anne C. Hodsdon
John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward Spellman*
* Members of the Audit Committee
Officers
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
Custodian
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
Transfer Agent
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Legal Counsel
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
<PAGE>
John Hancock Funds - Limited-Term Government Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
Final Report December 5, 1997* (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments at value - Note C:
United States government and agencies obligations
(cost - 135,526,448 ) $136,809,282
Joint repurchase agreement (cost - 20,929,000 ) 20,929,000
Corporate savings account 697
-------------------
157,738,979
Interest receivable 1,856,202
Other assets 9,600
-------------------
Total Assets 159,604,781
----------------------------------------------
Liabilities:
Payable for shares repurchased 34,688
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 125,094
Accounts payable and accrued expenses 136,738
-------------------
Total Liabilities 296,520
----------------------------------------------
Net Assets:
Capital paid-in 168,997,114
Accumulated net realized loss on investments (10,966,041)
Net unrealized appreciation of investments 1,284,544
Distributions in excess of net investment income (7,356)
-------------------
Net Assets $159,308,261
==============================================
<CAPTION>
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial interest outstanding
unlimited number of shares authorized with no par value)
<S> <C> <C> <C>
Class A - $149,668,850 17,632,403 $8.49
=====================================================================================================================
Class B - $9,639,411 1,135,614 $8.49
=====================================================================================================================
Maximum Offering Price Per Share**
Class A - ($ 8.49 x 103.09%) $8.75
=====================================================================================================================
</TABLE>
* The net assets of the John Hancock Limited-Term Government Fund ("the
Fund") were merged into the John Hancock Intermediate Maturity Government
Fund as of the close of business on December 5, 1997 and the Fund was
subsequently terminated. The Statement of Assets and Liabilities reflect the
Fund's position prior to the transfer of net assets and the termination of
the Fund. (See Note A to the Notes to Financial Statements).
** On single retail sales of less than $100,000. On sales of $100,000 or
more and on group sales the offering price is reduced.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
John Hancock Funds - Limited-Term Government Fund
Statement of Operations
For the Period June 1, 1997 to December 5, 1997* (Unaudited)
- -----------------------------------------------------------------------------
Investment Income:
Interest $ 6,521,714
----------------------
Expenses:
Investment management fee - Note B 514,856
Distribution and service fee - Note B
Class A 241,263
Class B 53,884
Transfer agent fee - Note B 279,348
Registration and filing fees 59,027
Custodian fee 25,388
Financial services fee - Note B 15,317
Printing 12,414
Miscellaneous 4,532
Trustees' fees 1,318
Legal fees 64
----------------------
Total Expenses 1,207,411
---------------------------------------------------------------
Net Investment Income 5,314,303
---------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments sold (341,745)
Change in net unrealized appreciation/depreciation
of investments 1,430,031
----------------------
Net Realized and Unrealized Gain on
Investments 1,088,286
---------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 6,402,589
===============================================================
* The net assets of the John Hancock Limited-Term Government Fund ("the Fund")
were merged into the John Hancock Intermediate Maturity Government Fund as of
the close of business on December 5, 1997 and the Fund was subsequently
terminated. The Statement of Operations reflects the Fund's position prior to
the transfer of net assets and the termination of the Fund. (See Note A to the
Notes to Financial Statements).
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
John Hancock Funds - Limited-Term Government Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
PERIOD FROM JUNE 1, 1997 TO
YEAR ENDED JANUARY 1, 1997 TO DECEMBER 5, 1997**
DECEMBER 31, 1996 MAY 31, 1997(1) (UNAUDITED)
------------------- ------------------ -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $11,239,968 $4,536,302 $5,314,303
Net realized loss on investments sold (2,003,789) (1,334,467) (341,745)
Change in net unrealized appreciation/depreciation of investments (2,843,831) (429,177) 1,430,031
------------------- ------------------ -----------------
Net Increase in Net Assets Resulting from Operations 6,392,348 2,772,658 6,402,589
------------------- ------------------ -----------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.4969, $0.2172 and $0.2754 per share, respectively) (10,700,263) (4,285,612) (5,006,919)
Class B - ($0.4365, $0.1927 and $0.2448 per share, respectively) (539,705) (232,158) (298,597)
Distributions in excess of net investment income
Class A - ($0.0004, none and $0.0017 per share, respectively) (7,046) - (31,320)
Class B - ($0.0004, none and $0.0015 per share, respectively) (450) - (1,868)
Distributions from capital paid-in
Class A - ($0.0002, none and none per share, respectively) (4,733) - -
Class B - ($0.0002, none and none per share, respectively) (302) - -
------------------- ------------------ -----------------
Total Distributions to Shareholders (11,252,499) (4,517,770) (5,338,704)
------------------- ------------------ -----------------
From Fund Share Transactions - Net:* (18,119,220) (16,011,498) (10,466,018)
------------------- ------------------ -----------------
Net Assets:
Beginning of period 209,446,375 186,467,004 168,710,394
------------------- ------------------ -----------------
End of period (including distributions in excess of net investment
income of $7,496, undistributed net investment income of $11,036
and distributions in excess of net investment income of $7,356
respectively) $186,467,004 $168,710,394 $159,308,261
=================== ================== =================
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1, 1997 TO
DECEMBER 31, 1996 MAY 31, 1997(1)
----------------------------------------- -------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------- ---------------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 8,589,879 $73,562,942 6,285,942 $53,204,395
Shares issued to shareholders
in reinvestment of distributions 1,084,136 9,262,691 435,562 3,679,981
----------------- ---------------------- ------------------ ----------------------
9,674,015 82,825,633 6,721,504 56,884,376
Less shares repurchased (11,785,941) (100,900,256) (8,627,330) (73,012,198)
----------------- ---------------------- ------------------ ----------------------
Net decrease (2,111,926) ($18,074,623) (1,905,826) ($16,127,822)
================= ====================== ================== ======================
CLASS B
Shares sold 2,842,991 $24,268,297 652,540 $5,515,265
Shares issued to shareholders in
reinvestment of distributions 47,385 404,715 19,673 166,136
----------------- ---------------------- ------------------ ----------------------
2,890,376 24,673,012 672,213 5,681,401
Less shares repurchased (2,895,175) (24,717,609) (657,806) (5,565,077)
----------------- ---------------------- ------------------ ----------------------
Net increase (decrease) (4,799) ($44,597) 14,407 $116,324
================= ====================== ================== ======================
<CAPTION>
FOR THE PERIOD
JUNE 1, 1997 TO
DECEMBER 5, 1997**
(UNAUDITED)
-----------------------------------------------
SHARES AMOUNT
---------------------- ----------------------
<S> <C> <C>
CLASS A
Shares sold 3,182,785 $26,928,922
Shares issued to shareholders
in reinvestment of distributions 518,720 4,411,725
---------------------- ----------------------
3,701,505 31,340,647
Less shares repurchased (4,815,026) (40,884,575)
---------------------- ----------------------
Net decrease (1,113,521) ($9,543,928)
====================== ======================
CLASS B
Shares sold 374,890 $3,175,817
Shares issued to shareholders in
reinvestment of distributions 24,345 207,108
---------------------- ----------------------
399,235 3,382,925
Less shares repurchased (506,836) (4,305,015)
---------------------- ----------------------
Net increase (decrease) (107,601) ($922,090)
====================== ======================
</TABLE>
(1)Effective May 31, 1997, the fiscal period end changed from December 31 to
May 31.
** The net assets of the John Hancock Limited-Term Government Fund ("the Fund")
were merged into the John Hancock Intermediate Maturity Government Fund as of
the close of business on December 5, 1997 and the Fund was subsequently
terminated. The Statement of Changes in Net Assets reflects the Fund's
position prior to the transfer of net assets and the termination of the Fund.
(See Note A to the Notes to Financial Statements).
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
John Hancock Funds - John Hancock Limited-Term Government Fund
Financial Highlights
<TABLE>
<CAPTION>
Selected data for a share of beneficial interest outstanding throughout the period indicated, investment returns, key ratios
and supplemental data are listed as follows:
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.97 $ 8.77 $ 8.80 $ 8.31 $ 8.73
--------- --------- --------- --------- ---------
Net Investment Income 0.54 0.48 0.38(1) 0.50(1) 0.50(1)
Net Realized and Unrealized Gain (Loss) on Investments (0.18) 0.14 (0.49) 0.42 (0.21)
--------- --------- --------- --------- ---------
Total from Investment Operations 0.36 0.62 (0.11) 0.92 0.29
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income (0.54) (0.48) (0.38) (0.50) (0.50)
Distributions from Net Realized Gain on Investments Sold (0.02) (0.11) ---- ---- ----
--------- --------- --------- --------- ---------
Total Distributions (0.56) (0.59) (0.38) (0.50) (0.50)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period $ 8.77 $ 8.80 $ 8.31 $ 8.73 $ 8.52
========= ========= ========= ========= =========
Total Investment Return at Net Asset Value (2) 4.19% 7.13% (1.31%) 11.23% 3.45%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $259,170 $262,903 $218,846 $198,681 $175,995
Ratio of Expenses to Average Net Assets 1.55% 1.51% 1.41% 1.36% 1.37%
Ratio of Net Investment Income to Average Net Assets 6.13% 5.34% 4.39% 5.76% 5.81%
Portfolio Turnover Rate 185% 175% 155% 105% 166%
<CAPTION>
- -------------------------------------------------------------------------------
FOR THE PERIOD
PERIOD FROM JUNE 1, 1997 TO
JANUARY 1, 1997 DECEMBER 5, 1997
TO MAY 31, 1997(6) (UNAUDITED)
------------------ -------------
<S> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.52 $ 8.44
--------- ---------
Net Investment Income 0.22(1) 0.28(1)
Net Realized and Unrealized Gain (Loss) on Investments (0.08) 0.04
--------- ---------
Total from Investment Operations 0.14 0.32
--------- ---------
Less Distributions:
Dividends from Net Investment Income (0.22) (0.27)
Distributions from Net Realized Gain on Investments Sold ---- ----
--------- ---------
Total Distributions (0.22) (0.27)
--------- ---------
Net Asset Value, End of Period 8.44 8.49
========= =========
Total Investment Return at Net Asset Value (2) 1.64(4) 3.88(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $158,218 $149,669
Ratio of Expenses to Average Net Assets 1.34%(5) 1.36%(5)
Ratio of Net Investment Income to Average Net Assets 6.23%(5) 6.24%(5)
Portfolio Turnover Rate 142% 32%
<CAPTION>
<S> <C> <C> <C> <C> <C>
CLASS B (3)
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.77 $ 8.31 $ 8.73 $ 8.52 $ 8.44
--------- --------- --------- --------- ---------
Net Investment Income (1) 0.30 0.45 0.44 0.19(1) 0.25
Net Realized and Unrealized Gain on Investments (0.46) 0.42 (0.21) (0.08) 0.04
--------- --------- --------- --------- ---------
Total from Investment Operations (0.16) 0.87 0.23 0.11 0.29
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income (0.30) (0.45) (0.44) (0.19) (0.24)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period $8.31 $8.73 $8.52 $8.44 $8.49
========= ========= ========= ========= =========
Total Investment Return at Net Asset Value (2) (1.84)(4) 10.60% 2.72% 1.34%(4) 3.51%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $7,111 $10,765 $10,472 $10,493 $9,639
Ratio of Expenses to Average Net Assets 2.12%(5) 1.93% 2.08% 2.04%(5) 2.07%(5)
Ratio of Net Investment Income (Loss) to Average
Net Assets 3.70%(5) 5.21% 5.10% 5.53%(5) 5.50%(5)
Portfolio Turnover Rate 155% 105% 166% 142% 32%
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charge.
(3) Class B shares commenced operations on January 3, 1994.
(4) Not annualized.
(5) Annualized.
(6) Effective May 31, 1997, the fiscal period end changed from December 31 to
May 31.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
John Hancock Funds - Limited-Term Government Fund
Schedule of Investments
`
December 5, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- ---- ---- -------- -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Government - U.S. (41.55%)
United States Treasury,
Bond 11.875% 11-15-03 $17,000 $ 21,972,500
Bond 10.750 08-15-05 15,000 19,352,400
Bond 12.000 08-15-13 7,000 10,206,840
Note 6.000 08-15-00 5,000 5,019,550
Note 8.750 08-15-00 5,700 6,105,213
Note 6.250 02-28-02 3,500 3,543,190
-------------
66,199,693
-------------
Government - U.S. Agencies (44.32%)
Federal Home Loan Mortgage Corp.,
15 Yr Pass Thru Ctf 8.500 06-01-06 to 07-01-07 5,630 5,833,170
CMO REMIC 1204-G 7.000 11-15-05 3,275 3,290,607
Deb 7.380 03-23-00 1,000 1,004,690
Federal National Mortgage Assn.,
30 Yr ARM 8.000# 03-01-22 926 962,634
CMO REMIC Pass Thru Ctf Ser G-29 Class N 8.500 06-25-07 4,147 4,169,238
Medium Term Note 8.320 03-02-05 1,500 1,509,135
Note Ser 04-J 8.250 10-12-04 28,900 29,940,342
Government National Mortgage Assn.,
30 Yr ARM 6.875# 10-20-24 17,595 18,084,159
30 Yr Pass Thru Ctf 8.500 01-15-27 5,552 5,815,614
-------------
70,609,589
-------------
TOTAL U.S. GOVERNMENT AND AGENCIES SECURITIES (85.87%)
(Cost $135,526,448) 136,809,282
-------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (13.14%)
Investment in a joint repurchase agreement
transaction with Hong Kong Shanghai Banking
Corp., Dated 12-05-97, Due 12-08-97 (secured by
U.S. Treasury Notes, 5.625% thru 9.125%, Due
5-15-99 thru 10-15-06 and U.S. Treasury Bonds,
6.875% thru 9.125%, Due 5-15-09 thru 8-15-25) 5.44 20,929 20,929,000
-------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Daily Interest Savings Account
Current Rate 4.950% 697
-------------
TOTAL SHORT-TERM INVESTMENTS (13.14%) 20,929,697
-------------
TOTAL INVESTMENTS (99.01%) $157,738,979
=============
</TABLE>
# Represents rate in effect on December 5, 1997.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Notes to the Financial Statements
John Hancock Funds - Limited-Term Government Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Limited-Term Government Fund (the "Fund") is a diversified open-end
management investment company, registered under the Investment Company Act of
1940. On May 21, 1996 the Trustees voted to approve a change in the fiscal
period from December 31 to May 31. This change was effective May 31, 1997.The
investment objective of the Fund is to provide current income and security of
principal through investments primarily in securities of the United States
government and its agencies.
The Trustees authorized the issuance of multiple classes of shares of the
Fund, designated as Class A and Class B shares. The shares of each class
represented an interest in the same portfolio of investments of the Fund and had
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses subject to the approval of the Trustees, may have been applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bore distribution and service expenses under terms
of a distribution plan, have exclusive voting rights regarding that distribution
plan.
On November 12, 1997, the shareholders of the Fund approved a plan of
reorganization between the Fund and John Hancock Intermediate Maturity
Government Fund ("Intermediate Maturity Government Fund") providing for the
transfer of substantially all of the assets and liabilities of the Fund to the
Intermediate Maturity Government Fund in exchange solely for shares of
beneficial interest of Intermediate Maturity Government Fund. After this
transaction and as of the close of business on December 5, 1997, the Fund was
terminated. The financial statements presented herein reflect the position of
the Fund prior to the exchange of net assets and termination of the Fund.
Significant accounting policies of the Fund were as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio were valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
were valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. Aggregate cash balances were
invested in one or more repurchase agreements, whose underlying securities were
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank received delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser was responsible for ensuring that the agreement was
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions were recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments were determined on the identified cost basis.
<PAGE>
FEDERAL INCOME TAXES The Fund's policy was to comply with the requirements of
the Internal Revenue Code that are applicable to regulated investment companies
and to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision was
required. For federal income tax purposes, the Fund had $10,903,176 of a capital
loss carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforward was used by the Fund, no
capital gains distributions would be made. The carryforward expires were
follows: May 31, 2002 - $7,286,040 and May 31, 2004 - $1,950,205, May 31, 2005 -
$1,314,170 and December 5, 2005 - $352,761. Expired capital loss carryforwards
were reclassified to capital paid-in, in the year of expiration.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Interest income on investment securities
was recorded on the accrual basis.
The Fund recorded all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions were
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principals. Dividends paid by the Fund with
respect to each class of shares were calculated in the same manner, at the same
time and were in the same amount, except for the effect of expenses that may
have been applied differently to each class.
DISCOUNT ON SECURITIES The Fund accreted discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) were calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees if any, were calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund.
BANK BORROWINGS The Fund was permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enabled
the Fund to participate with other Funds managed by the Adviser in an unsecured
line of credit with banks which permitted borrowings up to $600 million,
collectively. Interest was charged to each Fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at a
rate of 0.075% per annum based on the average daily unused portion of the line
of credit, was allocated among the participating Funds. The Fund had no
borrowing activity for the year ended December 5, 1997.
NOTE B-
MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the investment management contract, the Fund paid a monthly management fee
to the Adviser for a continuous investment program equivalent, on an annual
basis, to the sum of (a) 0.60% of the first $250,000,000 of the Fund's average
daily net asset value, (b) 0.55% of the next $250,000,000, and (c) 0.50% of the
Fund's average daily net asset value in excess of $500,000,000.
The Fund had a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the year ended December
5, 1997, net sales charges received with regard to sales of Class A shares
amounted to $58,667. Out of this amount, $7,507 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $13,997
was paid as sales commissions to unrelated broker dealers and $37,163 was paid
as sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
<PAGE>
Class B shares which were redeemed within four years of purchase were
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 3.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC were paid to JH Funds and were used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended, December 5,
1997, contingent deferred sales charges paid to JH Funds amounted to $19,470.
In addition, to reimburse JH Funds for the services it provided as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund made payments to JH Funds for
distribution and service expenses, at an annual rate not to exceed 0.30% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of such payments may have been service fees as defined by the amended
Rules of Fair Practice of the National Association of Securities Dealers. Under
the amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund had a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund paid transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund had an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and/or its affiliates, as
well as a Trustees of the Fund. The compensation of unaffiliated Trustees was
borne by the Fund. The unaffiliated Trustees could elect to defer for tax
purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund made investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation liability
were recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to market
on a periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. At December 5, 1997, the Fund's investments to
cover the deferred compensation liability had unrealized appreciation of $1,710.
NOTE C-
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of obligations of the U.S.
government and its agencies, other than short-term securities, during the year
ended December 5, 1997, aggregated $49,301,721 and $81,261,037, respectively.
The cost of investments owned at December 5, 1997 for federal income tax
purposes was $156,518,314. Gross unrealized appreciation and depreciation of
investments aggregated $1,977,378 and $757,410, respectively, resulting in net
unrealized appreciation of $1,219,968.
<PAGE>
NOTE D-
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended December 5, 1997, the Fund had reclassified amounts to
reflect a decrease in accumulated net investment loss of $6,009 and an increase
in capital paid-in of $6,009. This represented the amount necessary to report
these balances on a tax basis, excluding certain temporary differences, as of
December 5, 1997. Additional adjustments may have been needed in subsequent
reporting periods. These reclassifications, which had no impact on the net asset
value of the Fund, are primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax rules
versus generally accepted accounting principles. The calculation of net
investment income per share in the financial highlights excluded these
adjustments.
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the taxable distributions of the Fund for its fiscal year ended
December 5, 1997.
With respect to the Fund's ordinary taxable income for the fiscal year
ended December 5, 1997, none of the dividends qualify for the dividends received
deduction available to corporations.
